VXX - June Calls Active on July Bets for Vol

Discussion in 'Options' started by livevol_ophir, Jun 14, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    VXX (S&P 500 Short Term VIX futures ETN) is trading $27.78, down 3.7% with IV30&#8482 down 7.5% on seemingly reassured markets today.

    <img src="http://3.bp.blogspot.com/_hMry1m7UF10/TBZ9-lIwZhI/AAAAAAAAC9A/Oa0gcsbOvnE/s1600/vxx_summary_2.gif">

    This is a follow up to the post on 6-3-2010, <a href="http://livevol.blogspot.com/2010/06/vxx.html"><b>VXX - Bets on a Volatile July</b> (click to read)</a>.

    Today the ETN has traded over 21,000 options. All but 3,243 contracts have been calls. A lot of the action has been in the front month (June) OTM calls. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/vxx_14.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/vxx_14.html">in the article</a>) illustrates the action. Jun 30 calls have traded over 7,000 times (mostly purchases). This volume is substantially opening (trade volume >> OI). The Jun 32/34 call spread (buy 32/sell 34) has also traded a few thousand times. The OI in these lines are larger than the trade volume, I can't tell immediately if they are opening or closing. Either way, both trades get long the short-term VIX with a week to go into expo.

    The blog on 6-3-2010 discussed order flow in July which bet on volatility. These bets today are similar, but they are more like cheap bets with a big win if they're right, but with a correspondingly low probability of winning.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/vxx_14.html">in the article</a>) illustrates just how bid the upside is for these short term OTM calls. VXX hasn't traded options very long, in fact this may be the first expo (or second/third something small). It will be interesting to see how the skew changes (if it does) as the product gains maturity. Right now the $0.08 sale of the 34 calls against a purchase of 32 calls looks pretty nice (i.e. as of right now, they are no bid @ a dime).

    This skew chart is a nice juxtaposition to the VIX skew blog I posted a few days ago. That blog is available here: <a href="http://livevol.blogspot.com/2010/06/vix.html"><b>VIX Skew - What it Indicates and How Accurate it is</b></a>.

    Finally, the Charts Tab ETN level only (no vols this time) (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/vxx_14.html">in the article</a>).

    You can see the big up swing, followed by another wave up, then the drop since. I get the sense that the VXX will quickly become a commonly referred to broad risk measure. It seems to be gaining traction.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. darp


    Read your stuff. Thanks for putting it together. There is rather amazing expertise on this board, I should read it more often.

  3. livevol_ophir

    livevol_ophir ET Sponsor

    Thanks Darp.
  4. What's IV30™? I'm guessing from the ™ it's something in-house? Thanks.
  5. livevol_ophir

    livevol_ophir ET Sponsor

    IV30&#8482 is the implied vol of the hypothetical 30 day option. You can think of it as the VIX for a specific stock. It's a weighted average of two months and several strikes within certain std deviation paramaters.